A recent Reuters article suggests China’s domination of the base metals market was marching on relentlessly prior to the coronavirus outbreak.
The headline, “China’s copper imports and aluminium consumption to drop again in 2020,” suggested otherwise, painting an initial image of a depressed market — but the reality is it is anything but.
China’s imports of refined copper are likely to slide for a second year running, the article states, quoting research house Antaike.
But you have to read on to see the reason: refined imports are falling because of the rapid rate of smelter construction as China ramps up imports of ores and concentrates.
Refined copper imports are forecast at 3.1 million tons in 2020, down 12.7% from an estimated 3.55 million tons in 2019, and lower than the 3.75 million tons imported in 2018, Antaike is quoted as saying.
Refined copper consumption is actually forecast to rise by 1.2% to 11.4 million tons, with China’s own refined copper output projected to grow by 3.8% to 9.3 million tons this year and its exports by 10.8% to 350,000 tons. The research house is quoted as suggesting that it will leave China’s refined copper market in a surplus of 650,000 tons in 2020, narrowed from 936,000 tons last year.
Aluminum consumption, on the other hand, fell for the first time in a decade last year (down by 1%). The research house forecast a further 0.1% easing to 36.6 million tons in 2020.
In depressing news for producers outside China, a number of new smelters — mostly in Yunnan, southwest China — will raise output capacity this year by some 2.25 million tons, adding to overcapacity and creating a capacity-to-demand gap of nearly 1 million tons.
Whether that all finds its way into export markets, the traditional relief valve for excess production, remains to be seen. Producers in southeast Asia will be watching export figures closely.
Our research suggests Chinese mills remain extremely aggressive on price despite production and supply problems due to the coronavirus, suggesting exports remain many mills’ preferred solution to overcapacity rather than cutbacks or rationalization.